There is an ongoing debate about what the US is going thru and what it will go thru: inflation or deflation?

Martin Armstrong says we are in a deflationary monetary cycle. And in the big picture, he is right.

However,

Groovygirl has always said, it depends where you are. And gg has always said, it doesn’t matter how cheap a product/service is, if you don’t have any money to buy it. It is always about can your wages buy the necessaries or not? It really doesn’t matter the actual price, it’s the relation. Can you pay cash to buy a car or must you borrow? Can you borrow? Can you afford the monthly payment? A house? College? Health care? What percentage of your monthly income is spent on debt? 10%, 25%, 50%? If your wages go down, it could turn into 75% overnight?

I remember my grandfather talking about the Depression. He said he was much better off than many people because he had a steady job. He didn’t get a raise for 10 years, but he could save money and buy a car, because prices were low or relatively lower than before 1929/1930. He didn’t have to go in debt to survive. He could pay for food and rental housing and some extras like a car. And he wasn’t ever unemployed during that time.

People were in trouble during the Depression, because they couldn’t get a job, couldn’t earn enough (Farmers) to buy food and shelter, or couldn’t keep a steady income over that 10-year period and fell into debt to buy necessities. So, prices were expensive to them and many were starving and homeless.

It’s the relation of wages (employment) to prices. That’s why people are protesting for a higher minimum wage.

(That’s why people are leaving California with its high state income taxes and high property taxes for the Midwest. That’s why seniors are flocking to states, like Florida, that have no state taxes. People that can move are moving. They can do math and they can save 10-30% simply by moving to a different state and might get a better or steady job.)

But in Germany in the 1930’s, it was all about inflation. But inflation in prices didn’t keep up with wages (because of the country’s debt and their short-term solution of currency manipulation). It was still about the disconnect between wages and prices, but this time is was an inflationary macro environment.

So, structure investments, jobs, and assets to bring in income/gains that will keep up with prices in your home currency. And don’t forget about taxes. Income taxes and other taxes were not as extensive in the 1930’s as they are now. They must be considered in the “price” of living and assume they will go up.

John uses the original inflation index formula, before gov started jacking with it. Did your wages/income go up by 9% to meet the real inflation index? groovygirl’s didn’t. Who needs hyperinflation when wages are down or flat or zero because you are unemployed coupled with a 9% real inflation rate and climbing? In the main street household, that can feel like hyperinflation pretty quick. At the very least, it means less consumer spending, saving, and debt for big purchases like houses, cars, and student loans.

gg says: quite a disconnect between inflation formula of today and inflation formula of the pre-1980’s. If you don’t like the number, just change the formula! Did your wages and/or investments go up 9% after taxes?

John has released several notes on recent data. Here are some bullet summaries for free. He also released a Hyperinflation Update. He still calls for hyperinflation to begin in 2014. This conflicts with Martin’s thoughts on the dollar continuing to move up (or not decline) as capital flees the Euro and emerging markets.

One thing to note. John’s definition of a hyperinflation is an increase in prices/expenses and a decrease in debt availability. There are other factors that can affect prices here in the US. Things that are produced here: US taxes, state taxes, rising health care costs. Things that are imported from emerging markets: rising manufacturing costs in China due to taxes, currency exchange rates, and labor demands. In reviewing gg’s utility cost breakdown for 2013, she noticed that the cost of energy/water was down or stable, but the taxes, admin, and service costs were up again. This has been a trend since she started tracking it. Infrastructure costs, labor costs, and taxes have a major impact on basic living costs. These things don’t have anything to do with the dollar chart. groovygirls says: if your basic living expenses go up 2-3% per year, but your wages are flat or go down, it feels like an inflationary depression to you, personally. Martin’s thoughts on the dollar are invaluable to those able to trade the globe, not just the US economy.

– Jobs Loss or Jobs Gain, Either Is Possible Within the Reporting-Confidence Interval Around December Payrolls
– Revisions Show Headline Unemployment Changes Are Meaningless
– December Unemployment: 6.7% (U.3), 13.1% (U.6), 23.3% (ShadowStats)
– Year-to-Year Growth Slows in December M3

groovygirl follows John Williams at shadowstats.com. remember that John’s definition of hyperinflationary depression is an economic downturn that is triggered by a deflation in debt (debt unavailable and/or too expensive) and an inflation in expenses (especially living expenses and commodity-related needs). There can be inflation in assets, but assets that are dependent on new debt creation (such as housing) will be under pressure long-term.

In gg’s opinion, we have been in this situation since 2006-2007, but creative accounting and money printing has masked the truth. At some point, we will have another round. Investors will either not believe the numbers and sell in a panic, we will have a trigger in the shadow banking system that spreads to other markets which occurred in 2008-2010 and investors have to sell assets to cover other debt obligations.

We still have a global economic balance sheet problem. Money printing and creative accounting solved the cash flow problem, but only temporarily.

This interview from a Switzerland perspective on gold/precious metals with Egon von Greyerz. Click here. About 25 minutes.

One important thing he states is that what he thought would happen (collapse of the dollar and its impact on global fiat money system/precious metal investments) is taking longer than he thought. He didn’t think that people would take the huge amount of printed money from all central banks, not just the US, as actual money. gg agrees, she certainly wouldn’t. But not everyone invests as gg would. Short-term profits rule at the moment, no question about it.

And the very important thing he says : “People should prepare themselves to the best of their ability and then just continue to enjoy life.” Excellent advice. Very good interview.

European, and particularly Switzerland, perspective.

This person advises very wealthy people, probably mostly Europeans, so he mentions things like art, diamonds, etc. So, not everything will apply to the Main Street investor.

This person has been in the business/economics for a very long time. When he talks about the fall of the dollar (especially vs the Swiss Franc), it is on a 50-year time line.

3. Since the only endgames to ballooning debts and declining household incomes are runaway inflation or renunciation of debt, the Status Quo has only one choice left to preserve its neofeudal arrangement: do more of what has failed spectacularly, i.e. inflate more asset bubbles as a way to mask the system’s phantom collateral for a few more months or perhaps years.

Unfortunately for central banks and their politico cronies, serial asset bubbles face the headwinds of diminishing returns. All the Fed and Federal agencies had to do to launch the first housing bubble was lower interest rates and encourage subprime mortgages.

Take a look at that Case-Shiller House Price Chart, can you say unsustainable? The Fed is purchasing billions in mortgages each month and the US government is insuring any and all new mortgages and it is still a basic flat line. Spending lots of money just to stay in place….unsustainable.

And take a look at that stock market chart, adjusted for CPI (which is the lowest inflation indicator), stocks have not rebounded. But you would never guess that from listening to the financial talking heads. With this chart in mind, there is still movement up for stock prices, but just keep in mind that is up just to get where you were in 2007. And look at the scary volatility in the stock market since 2007. Bumpy ride.

But the scariest chart, the one that will ensure an economic depression for the next 20 years (whether that is a deflationary depression or a hyperinflationary depression or both, one after the other). It is the spread between real income and real expenses and the widening of that gap that will keep the US in a depressive economic situation for years to come.That spread can happen in a deflation or hyperinflation, same outcome for Main Street. And Main Street, the consumer, is 70% of GDP.

That increasing spread will make sure more defaulted consumer and mortgage debt, lower GDP, and more bail outs and bail-ins for entities holding that debt. Add to this an aging population those income naturally declines after retirement.

Groovygirl just finished reading John Williams’ (shadowstats.com) latest special commentary with an update on the coming Hyperinflation. It was 49 pages. Lots of good info, his real graphs are the best info! You pay for the detail. Physical gold and silver and strong currencies (such as Canadian, Australian, and Swiss) still the best hedges.

I would like to clear up probably the most common misconception about hyperinflation. What most people believe is that massive printing of base money leads to hyperinflation. No, it’s the other way around. Hyperinflation leads to the massive printing of base money.

Hyperinflation, in most people minds, conjures images of trillion dollar Zimbabwe notes. But this image is simply the government’s reflexive response to the onset of hyperinflation, which is actually the loss of confidence in the currency. First comes the loss of confidence (hyperinflation), then, and only then, comes the massive printing to keep the government and its obligations afloat.

You see, hyperinflation is exactly like deflation. The only thing hyperinflation has in common with inflation is part of its name. It looks just like a deflationary depression. In fact, it IS a deflationary depression, with a different numéraire, being GOLD.

There is still a debate in gg’s mind that hyperinflation in the dollar would have less of an effect on the core (US) vs. the rest of the world dealing in dollars. However, in this global economy, any effect outside, leads to an effect inside. In addition, trade wars, currency wars and, of course, the dreaded petro non-dollar will have a negative effect on the US economy, inflation in prices, and jobs. The question is how bad an effect? 100% increase on prices? 200? 500? In a jobless recovery, any increase is extreme pressure. gg thinks it is a question of will we meet the “official” percentage of hyperinflation or will it just feel like it? Does it really matter?